As gross government debt nears $1 trillion, the numbers reveal a confronting truth — most of it was racked up by Coalition governments. Stephen Koukoulas reports.
GROSS COMMONWEALTH government debt is poised to break through $1 trillion. This is likely to happen during 2026 as a series of small budget deficits add to the current $960 billion of outstanding debt.
At face value, it is a big number that can be demonised as a sign of economic (mis)management and, as a result, can have political implications.
Who remembers the “Labor’s debt and deficit disaster” campaign of Liberal Leader Tony Abbott a decade and more ago?
The reality is that the current level of debt, in relation to the size of the economy, is small and well contained. Australia’s annual economic output is poised to hit $3 trillion in the next year.
It needs to be remembered that the vast bulk of the increase occurred under the watch of Coalition governments.
The details of this are set out below.
That said, government debt as a share of GDP has fallen since Treasurer Jim Chalmers and Finance Minister Katy Gallagher took over responsibility for government finances in 2022.
The modest level of government debt is why the credit rating agencies, including Moody’s and Standard & Poors, have Australia’s sovereign debt risk rated AAA, the highest rating possible.
The level of debt is lower in net terms.
Net debt is calculated by subtracting the sum of the Government’s financial assets (cash and deposits, advances paid and investment, loans and placements) from gross debt.
As a share of GDP, net government debt rose from 15% to 28% under the nine years of the Abbott, Turnbull and Morrison Coalition administrations. To be sure, part of this was the stimulus measures associated with the COVID pandemic, but even before the arrival of that economic shock, net government debt was rising.
According to the latest budget numbers, net debt is hovering around 22% of GDP, a hefty six percentage points of GDP below the Coalition peak.
Returning to the gross debt concept and the tantalising prospect of it hitting $1 trillion in the months ahead, a check of the history of government finances and debt accumulation shows that it is Coalition governments that are responsible for the bulk of the trillion dollars of debt that are on the way.
Debt accumulation under each government from Whitlam
According to the budget papers, when the Whitlam Government ended in 1975, gross debt was $15 billion, having been $11 billion when Labor took office in 1972 — a rise of $4 billion.
Under the stewardship of the Fraser Government from 1975 to 1983, where John Howard was Treasurer for the bulk of that time, gross debt reached $37 billion, an increase of $22 billion. A recession and reckless tax cuts fuelled the rise in debt.
Under the Hawke/Keating Administration from 1983 to 1996, gross debt rose to $110 billion, an increase of $73 billion, with a recession and lower taxes impacting the budget balance and, hence, debt.
The Howard Government from 1996 to 2007 reduced outstanding government debt to $55 billion, cutting $55 billion as a frenzied commodity price and mining boom fed a series of budget surpluses.
Enter the Rudd/Gillard Government from 2007 to 2013. Debt rose to $257 billion or $202 billion during that time in office, with the Global Financial Crisis a catalyst for higher debt. It was during this period that Australia achieved its across-the-board AAA credit rating.
Under the Abbott/Turnbull/Morrison Government from 2013 to 2022, government debt jumped to $895 billion, a staggering increase of $638 billion in just nine years. Surging government spending, in concert with the measures to support the economy during the COVID pandemic, fuelled this explosion in debt.
Current budget numbers estimate that government debt will reach $1.022 trillion by June 2026. If so, this will be an increase of $127 billion in the first four years of the Albanese Government, with the hangover of the COVID pandemic and an extended period of subdued bottom-line GDP growth dampening tax revenue.
When these figures are taken as a whole, over the past half-century, Coalition governments have added a total of $605 billion to the level of gross government debt while Labor governments have added just $406 billion.
What budget position did the Albanese Government inherit?
If or when the current and prospective level of government debt becomes a dominant political issue, it is eye-opening to look at the budget position outlined by Liberal Treasurer Josh Frydenberg just before the May 2022 Election.
In that budget, Frydenberg showed that under the Coalition’s policy settings, gross debt was on track to rise to $1.056 trillion by June 2024 and $1.169 trillion by June 2026.
As noted, under the policies of Chalmers and Gallagher, the June 2024 debt level came in at $940 billion, some $116 billion less than the Frydenberg legacy, and $1.022 trillion in June 2026, some $147 billion below the train wreck of the Coalition. And this is just three years.
All of which shows, quite plainly, that as the $1 trillion government debt is approached and debated, remember which side of politics is responsible for the bulk of this imbalance.
Stephen Koukoulas is one of Australia’s most respected economists, a past chief economist of Citibank and senior economic advisor to an Australian Prime Minister. You can follow Stephen on Twitter/X @TheKouk.
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